The Federal Reserve should have focused on getting the securitization market working again, as it promised last autumn, to avoid situations like that in which lender CIT Group is now, Steve Forbes, CEO of Forbes, told CNBC Tuesday.
CIT Group has 1 million clients which include big names from the franchisee of Dunkin' Donuts to retailer Dillard's. Analysts fear that its collapse could deal a devastating blow to the economy by cutting off financing even more.
"CIT would have never have been in this trouble if the Federal Reserve had gotten the securitization market working again," Forbes told "Squawk Box."
Banks have now been recapitalized and have three times more cash than they did last September when Lehman Brothers collapsed but "what we have here, in terms of the rest of the market, in terms of securitization… that thing isn't working yet," he added.
CIT got $2.3 billion in bailout cash last year and is in talks with regulators about receiving more government help.
One option would be to include the lender, which turned into a bank holding company last year, in the Federal Deposit Insurance's Temporary Liquidity Guarantee Program – but analysts say the government would not like this solution.
Forbes also said he was against bailing out individual companies but insisted the Fed should have done a better job to ensure this does not happen.
"The Federal Reserve has got to make a distinction… buying long-term Treasurys is useless," he said. "In terms of getting the securitization market going, they should have done this 3-4 months ago, we wouldn't be in this mess now."
"They should have aggressively moved on mortgage-backed securities, which they promised to do in November and never did," Forbes added.